Next Wave Of Internet IPOs To Ride On Profitability, Not Hype: BofA

India is now the world's third-largest tech maiden offering hub, trailing only the US and China, according to BofA Securities' latest report. After extensive ground checks, investor meetings, and city visits, the brokerage says it remains bullish on India's internet sector, retaining 'buy' ratings on MakeMyTrip, Info Edge, and FirstCry.

BofA's report classifies India's digital listings into three cohorts:

Cohort 1 (2021–22): The early birds like Zomato, Nykaa, and PB Fintech. These companies went public when liquidity was flush and investor benchmarks were absent. Most were loss-making, but they've since set the tone for what success or failure looks like in public markets. The group collectively holds a market cap of $56 billion.

Cohort 2 (2024): These companies (like Swiggy, FirstCry, Ixigo, and MobiKwik) had benchmarks to live up to but launched in a tougher macro environment. Most are trading below their IPO or last private round valuations. For example:

• FirstCry: Valuation down 16%.

• Swiggy: Down 4%.

• MobiKwik: Down a steep 72%.

• On the flip side, Ixigo and TBO Tek have gained over 100% since IPO.

Cohort 3 (Coming soon): The next-gen players have learnt that profitability is no longer optional. Public markets are no longer rewarding just growth; they're demanding cash flow visibility, says BofA. These companies are likely to be valued on 2-year forward EV/Ebitda or P/E ratios.

Where The Action Is

Online Travel:

• MakeMyTrip dominates international flights using virtual interlining.

• Redbus and Ixigo are winning in the train/bus segments by cross-selling services and building user trust.

• Even alternate accommodations are scaling at 50–60% annually.

Agentic AI could soon help users plan itineraries and automate bookings, says BofA, but for now, human-led platforms are holding strong.

Quick Commerce:

• Zomato's Blinkit is adding more dark stores while peers like Swiggy, Zepto, and BigBasket slow down.

• Both Zomato and Swiggy remain aggressive in discounts and marketing.

• Rider supply remains a bottleneck, especially in metros like Mumbai, Bengaluru, and Pune.

The brokerage stated that Amazon and Flipkart are also taking baby steps in the quick-commerce game.

Food Delivery:

• Growth is steady, not spectacular.

• Swiggy's 10-min Bolt offering shows promise.

• Platforms see a 40–50 million user opportunity by offering cheaper and more reliable food delivery, but the economics remain a puzzle.

AI

No one expects India to build foundational AI models, says BofA, but the firm added that venture capitalists are betting big on agentic AI and application-layer innovations. Maintenance and testing jobs may survive AI's coding disruption for now, said the note, adding that some investors are eyeing Indian chip design startups, especially in AI inference and training.

Fintech

India's fintechs have diversified into lending, wealth-tech, and insurtech, says BofA, as payment monetisation stays tricky thanks to UPI's zero-MDR architecture. Startups with India-first business models and solid risk moats are the ones attracting VC dollars, claims the note. Digital infrastructure like ONDC and account aggregators will further aid credit delivery.

D2C Brands

Direct-to-consumer brands are scaling faster thanks to platforms like Blinkit and Instamart. But BofA flags friction:

• Brands say platforms don't foster loyalty.

• Platforms say they drive discovery and category growth.

Top brands negotiate lower take-rates, but newer ones often feel squeezed. Interestingly, most brands prefer advertising on Instagram over these platforms, seeing them as more than just a digital shelf, as per the note.